Assignment 3 Econ Essay

1060 Words Apr 1st, 2015 5 Pages
Assignment 3: Economics 202
Problems for Chapter 13
1. Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year:

Economists also estimate that the investment function is:

where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium interest rate. Please note: national savings is not related to the interest rate, which means that the supply curve for loanable funds is vertical. (15 points)

Private Savings= Y-T-C 10000-1500-6000= 2500
Public Saving= T-G 1500-1700= -200
National Saving= S=(Y-T-C)+(T-G)=(10000-1500-6000)+(1500-1700)= 2300
Investing= I=Y-C-G
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c. A bond from Coca-Cola or a bond from a software company that run in your garage
i. The software company due to not being well known so it would be a higher interest rate.
d. A bond issued by the federal government or a bond issued by the state of New York
i. Definitely federal government because they are not tax-exempted compared to municipal bonds

6. When company executives buy and sell stock based on private information they obtain as part of their jobs, they are engaged in insider trading.
a. Give an example of inside information that might be useful for buying or selling stock. (6 points)
i. Information on new products or any government involvement that may affect the firm
b. Those who trade stocks based on inside information usually earn very high rates of return. Does this fact violate the efficient markets hypothesis? (6 points)
i. Who does trade with inside information is not violating the efficient market hypothesis. The hypothesis includes all available information about the future of the firm. Inside information is not available to the public meaning the price of the stock doesn’t reflect this.
c. Insider trading is illegal. Why do you suppose that is? (5 points)
i. It’s illegal for sure due to the fact that it gives others an unfair advantage over everyone else who doesn’t have access to this.

7. Jamal has a utility function , where W is his wealth in millions of dollars and U is the utility that he obtains.
a. Graph Jamal’s

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